REPORT FROM THE COMMISSION TO THE COUNCIL concerning the dock dues tax arrangements in the French overseas departments 
Date: 2010-12-14
Institutions: European Commission
Subjects: French overseas department and region, import tax, local tax, tax system

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EUROPEAN COMMISSION 

Brussels, 14.12.2010 
COM(2010) 742 final 

REPORT FROM THE COMMISSION TO THE COUNCIL 

concerning the dock dues tax arrangements in the French overseas departments 

SEC(2010) 1558 final 

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REPORT FROM THE COMMISSION TO THE COUNCIL 

concerning the dock dues tax arrangements in the French overseas departments 

1. 

BACKGROUND 

The Treaty on the Functioning of the European Union (TFEU), which applies to the 
outermost  regions  of  the  EU,  including  the  four  French  overseas  departments 
(DOMs),  does  not  in  principle  allow  any  difference  in  the  DOMs  between  the 
taxation of local products and the taxation of products from metropolitan France or 
the other Member States. Article 349 of the TFUE (former Article 229(2) of the EC 
Treaty)  provides,  however,  for  the  possibility  of  introducing  specific  measures  for 
those  regions  because  of  the  permanent  handicaps  which  affect  the  economic  and 
social conditions of the outermost regions. 

Council  Decision  2004/162/EC  of  10  February  2004,  adopted  on  the  basis  of 
Article 299(2)  of  the  EC  Treaty,  authorises  France,  up  to  1 July  2014,  to  apply 
exemptions from or reductions in the tax known as "dock dues" to certain products 
manufactured in the DOMs. The Annex to that Decision contains a list of products to 
which the tax exemptions and reductions may be applied. The difference between the 
taxation of locally manufactured products and the taxation of other products may not 
exceed 10, 20 or 30 percentage points, depending on the product.  

Decision 2004/162/EC sets out the reasons for adopting the specific measures, which 
include  isolation,  raw  material  and  energy  dependence,  the  obligation  to  build  up 
stocks,  the  small  size  of  the  local  market  and  the  low  level  of  export  activity.  The 
combination of these  handicaps  means that production costs, and therefore the cost 
price of goods produced locally, are increased, so that without specific measures they 
would be less competitive than goods produced elsewhere, even taking into account 
the  cost  of  transporting  the  latter  to  the  DOMs.  This  would  make  it  harder  to 
maintain local production. The specific measures contained in Decision 2004/162/EC 
were thus designed to strengthen local industry. 

Article 4 of Decision 2004/162/EC provides that the French authorities must present 
to  the  Commission  by  31  July  2008  a  report  on  the  application  of  the  tax 
arrangements  authorised  by  the  Decision,  in  order  to  check  the  impact  of  the 
measures  taken  and  their  contribution  to  promoting  or  maintaining  local  economic 
activities,  taking  account  of  the  handicaps  affecting  the  outermost  regions.  On  the 
basis of this report, the Commission must present a report to the Council giving a full 
economic  and  social  analysis  and,  where  appropriate,  a  proposal  for  adapting  the 
provisions of Decision 2004/162/EC. 

On  31 July  2008  the  French  authorities  accordingly  submitted  their  report  to  the 
Commission.  On  22  December  2008  a  supplement  was  submitted,  and  the  further 
information  requested  by  the  Commission  on  16  April  2009  was  sent  to  it  on  16 
April 2010. These documents are set out (in French only) in a Commission working 
paper which is separate from this report. 

The report from the French authorities includes a request for the list of products to 
which differentiated taxation may be applied to be updated for French Guiana. This 
request,  which  initially  concerned  approximately  80  products,  was  subsequently 
streamlined and, in its definitive form of 16 April 2010, concerns only 64 products. 

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2. 

MAIN ELEMENTS CONTAINED IN THE FRENCH AUTHORITIES' REPORT 

The  report  first  recapitulates  the  stages  whereby  the  2004  Council  Decision  was 
implemented  in  the  DOMs.  It  then  states  the  view  that  the  differentiated  tax 
arrangements  for  the  dock  duties  do  not  constitute  an  obstacle  to  trade  with  the 
DOMs,  since  the  flow  of  imports  into  each  of  the  four  DOMs  of  the  products  to 
which  a  tax  differential  was  applied  has  continued  to  grow  since  2004.  The  tax 
differential  has  not  stopped  the  products  concerned  from  being  brought  into  the 
DOMs from outside. 

The  report  states  that,  although  overall  inflation  is  higher  than  in  metropolitan 
France, this is not the case for the manufactured products which are most affected by 
the tax differentials.  The  report does  not discuss the effect of the  dock dues  on the 
general  level  of  prices  in  the  DOMs  or  the  difference  between  that  level  and  the 
general price level in metropolitan France. 

In terms of assistance to enterprises, the report notes that it is difficult to put an exact 
figure on the impact of the tax differentials because of the other regional aid in place 
for enterprises in the DOMs. It concludes that the differentiated tax arrangements for 
dock dues are an essential prop to the profitability and survival of many production 
activities  in  the  DOMs.  Thus,  it  notes,  even  taking  account  of  all  the  assistance 
received,  enterprises  in  the  DOMs,  apart  from  the  largest  ones,  always  have  net 
results that are two points lower than those of enterprises in metropolitan France. As 
to  the  largest  enterprises,  the  tax  differentials  on  the  dock  dues  encourage  them  to 
invest, which has helped to maintain economic growth in the DOMs. 

Revenue  from  dock  dues  was  approximately  EUR 923  million  in  2006,  95%  of 
which came from dock dues on "imports". The report provides information on how 
the revenue from dock dues has been used. 

In the supplement to the report, received in December  2008, the French  authorities 
provided an update based on the figures for 2007. The revenue from dock dues rose 
from  EUR  923  million  to  EUR  957  million.  The  proportion  used  to  finance 
investments  in  the  DOMs  increased  to  31%.  The  tax  differentials  did  not  halt  the 
growth in imports, although the growth was smaller, except in Guadeloupe. 

The share of local production in supplying local demand in the DOMs ranges from 
29.1%  in  French  Guiana  to  36.7%  in  Martinique.  The  figures  provided  do  not 
distinguish between products which benefit from a tax differential for dock dues and 
those that do not. 

The supplement to the report states that it has not so far been possible to quantify the 
effects of the dock dues tax differentials on employment in the enterprises producing 
the  products  concerned.  However, 
it  does  provide  some  general  data  on 
unemployment and paid employment in the DOMs. 

The supplement also states that the impact of the dock dues on the general price level 
of  the  products  covered  by  differentiated  taxation  and  on  the  inflation  rate  in  the 
DOMs cannot be determined on the basis of the data available. All that is available is 
data  on  product  price  trends  (for  products  covered  by  the  tax  differential  and  for 
other  products).  The  information  provided  leads  to  different  conclusions  for  the 
different DOMs. 

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Lastly,  the  supplement  to  the  report  includes  additional  information  relating  to  the 
request  that  the  list  of  products  to  which  differentiated  taxation  may  be  applied  be 
updated for French Guiana. 

By letter of 15 April 2009 the Commission informed the French authorities that the 
information provided was insufficient to assess the real effects of the tax differentials 
on activity in the DOMs. The French authorities were accordingly asked to provide, 
for  each  DOM  and  for  each  category  of  product  benefiting  from  a  dock  dues  tax 
differential in the DOM concerned, an evaluation of the impact of the arrangement in 
terms of maintaining and promoting local activity and in terms of trading conditions. 

On 16 April 2010 the French authorities sent the Commission tables containing, for 
each  of  the  32  major  categories  of  product  benefiting  from  such  a  differential, 
information on the amount of aid received by the enterprises concerned under these 
arrangements,  the  profits  or  losses  made  by  those  enterprises,  the  number  of  their 
paid  employees,  the  share  of  locally  produced  products  in  total  sales  of  such 
products, and export trends. 

The  French  authorities  altered  their  request  for  French  Guiana,  which  now  only 
refers  to  64  products,  and  provided  various  additional  details  requested  by  the 
Commission in its letter of 15 April 2009. 

3. 

COMMISSION ANALYSIS 

The Commission regrets that a precise evaluation of the impact of the measures taken 
for  each  category  of  product  benefiting  from  a  dock  dues  tax  differential  and  the 
extent to which they helped to maintain or promote local economic activity could not 
be  provided  by  the  French  authorities  in  July  2008  as  stipulated  in  Article  4  of 
Decision  2004/162/EC.  The  fact  that  this  study  was  not  undertaken  until  later 
delayed  the  provision  of  information  to  the  Commission  and  meant  that  the 
information is in part fragmentary and in part very limited, or even non-existent. 

In view of the submission date of the report from the French authorities (July 2008), 
it is difficult to study, over a long period, the impact of the tax differentials applied 
under Decision 2004/162/EC. The  French authorities  did not provide data for 2004 
because  Decision  2004/162/EC  has  applied  only  from  1 August  2004  and  the  dock 
dues arrangements applicable before that date were not necessarily the same as those 
which applied from that date making the data for 2004 scarcely usable. 

As  a  result  of  all  these  factors,  the  Commission  is  unable  to  present  a  report 
containing  "a  full  economic  ...  analysis",  as  Article 4  of  Decision  2004/162/EC 
requires. Since the Commission is heavily dependent on the information supplied by 
France  and  does  not  have  any  other  means  of  gathering  more  information,  its 
analysis is necessarily based on the information received. The following conclusions 
can be drawn from the information provided. 

3.1. 

The DOMs are still affected by handicaps 

Although the French authorities' report does not go into this matter, it is clear that the 
handicaps  referred  to  above  which  affect  DOM  products  and  were  the  justification 
for Decision 2004/162/EC still persist. They are structural handicaps connected with 
the remote and insular nature of the DOMs, with all the implications they entail in 
terms of higher costs for local production.  

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3.2. 

The consequences of applying differentiated rates of dock dues to products 

Only fragmentary information could be obtained on the impact of the differentiated 
taxation on growth and employment in each sector under consideration. In terms of 
employment, the number of jobs in the sectors benefiting from a tax differential for 
dock  dues  remained  unchanged  overall  between  2005  and  2007.  In  Guadeloupe 
employment fell by over 1 000 jobs, mainly in the livestock and fisheries sectors. In 
Martinique it was more or less stable for the same categories of enterprise over the 
same period. The trend for Réunion cannot be determined on the basis of the figures 
provided. 

The  data  submitted  also  provide  information  on  the  profit  trends  for  enterprises 
whose  products  are  made  locally.  However,  the  information  is  patchy  and  leads  to 
some  highly  contrasting  conclusions  for  different  sectors.  Furthermore,  the  level  of 
enterprises'  profits  is  obviously  not  determined  solely  by  whether  or  not  their 
products benefit from differentiated taxation for dock dues. 

The data supplied on 16 April 2010 show that situations vary greatly regarding the 
respective  shares  of  the  market  occupied  by  local  products  benefiting  from  the  tax 
differential  on  the  one  hand  and  products  coming  from  outside  the  DOMs  on  the 
other.  Some  local  products  still  hold  only  a  very  small  share  of  the  market  despite 
benefiting from a tax differential for dock dues. In other cases, the tax differential for 
dock  dues  has  allowed  local  products  to  take  a  share  of  the  market  approximately 
equivalent  to  that  taken  by  external  products.  These  are  the  two  most  frequent 
scenarios  and  this  accords  with  the  information  provided  in  the  initial  report  of 
31 July 2008, according to which the flow of "imports" into each of the four DOMs 
has continued to grow since 2004 despite the tax differentials for dock dues. Imports 
of  products  from  the  ACP  countries  are  affected  only  marginally.  The  number  of 
products concerned (mainly petroleum products) is in any case limited. 

Lastly, in the case of some other products, the information provided shows that the 
local products benefiting from differentiated taxation occupy nearly all, if not all, of 
the  market,  meaning  that  the  share  of  "imported"  products  is  very  small,  or 
sometimes  even  non-existent.  This  raises  questions  about  whether  differentiated 
taxation should be maintained in such cases, where at first glance the local products 
appear to be competitive against products from outside the DOMs. At this stage it is 
difficult to come up with a definitive answer for all the products concerned, since the 
data available for the report cover only three years. This issue will have to be studied 
in detail if the French authorities ask to continue to apply a tax differential after July 
2014.  However,  in  some  cases  it  seems  that  Decision  2004/162/EC  should  be 
amended at once (see below). 

4. 

AMENDMENTS TO THE 2004 DECISION 

The  last  paragraph  of  Article  4  of  Decision  2004/162/EC  provides  that  the  report 
from the Commission to the Council may, where appropriate, be accompanied by a 
proposal  for  adapting  the  provisions  of  the  Decision.  Such  is  the  case  here.  This 
report  is  accompanied  by  a  proposal  for  a  Council  Decision  on  the  points  set  out 
below. 

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4.1. 

Extending the list of products to which differentiated dock dues taxation may be 
applied in French Guiana  

The  French  authorities  have  already  asked  the  Commission  in  the  past  to  present  a 
proposal for a Council Decision under Article 3 of Decision 2004/162/EC increasing 
the number of products to which differentiated dock dues taxation may be applied in 
French  Guiana.  Essentially  this  request  could  not  be  satisfied  at  the  time  because 
neither  of  the  scenarios  envisaged  in  this  provision,  namely  the  emergence  of  new 
production  or  a  threat  to  local  production  caused  by  certain  commercial  practices, 
applied.  For  the  few  French  Guianese  products  which  did  fall  within  the  scope  of 
Article 3, the Council adopted Decision 2008/439/EC on 9 June 2008. 

The  French  authorities  repeated  their  request  concerning  French  Guiana  in  their 
report to the Commission of 31 July 2008. In its most recent form, the request relates 
to  64  additions  or  changes.  The  Commission's  proposal,  as  regards  French  Guiana, 
would  add  46  completely  new  products  to  the  different  lists  of  products  to  which 
differentiated taxation may be applied and would increase the authorised differential 
or expand the scope of application for six products. The 46 completely new products 
include 43 products which are already produced locally and three which are not, but 
for which there are specific plans to start production. 

The proposed changes to Decision 2004/162/EC are set out in detail in the proposal 
for a Council Decision accompanying this report. 

4.2. 

Other proposed changes 

When the various statistical documents annexed to the report from French authorities 
were  examined  it  was  found  that  a  number  of  points  in  Decision  2004/162/EC 
needed to be amended. These changes do not undermine the overall structure of the 
arrangements  provided  for  in  the  Decision,  which  applies  until  1 July  2014. 
However, in certain specific cases the original Decision should be amended now to 
take  account  of  situations  that  were  noted  when  the  French  authorities'  report  was 
examined  or  as  a  result  of  questions  asked.  There  are  several  reasons  for  the 
proposed changes. 

Firstly, it was found that since 2004 local production of some products had ceased, or 
else  the  French  authorities  are  no  longer  applying  the  dock  dues  tax  differential  to 
some  other  products  because  those  produced  locally  are  now  selling  at  prices 
matching those produced outside the DOM concerned. There is therefore no longer 
any  reason  to  retain  these  products  on  the  list  of  products  for  which  differentiated 
taxation is authorised. 

It was also found that for a number of products the dock dues tax differential actually 
applied  is,  for  various  reasons,  significantly  lower  than  the  maximum  differential 
authorised by Decision 2004/162/EC. While it is true that the Decision was intended 
to allow the French authorities some flexibility in determining what tax differentials 
to  actually  apply,  and  there  is  no  intention  of  reversing  this  flexibility,  there  are 
nevertheless  situations  in  which  there  is  a  big  difference  between  the  maximum 
authorised  tax  differential  and  the  differential  actually  applied.  Situations  in  which 
the tax differential actually applied is more than 10 percentage points lower than the 
differential  authorised  were  therefore  examined.  In  some  cases  the  Commission 
concluded  that  the  maximum  differential  currently  authorised  should  not  be 
maintained,  but  reduced.  These  cases  are  specified  in  the  proposal  for  a  Council 
Decision. 

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Lastly, in the case of some twenty other products to which differentiated taxation is 
applied, the local products occupy nearly all, if not all, of the market, meaning that 
the share of products coming from outside was zero (no "imports") in 2005, 2006 and 
2007. As already stated, the Commission has doubts as to whether a tax differential 
needs to be maintained for these products, particularly as there is already significant 
local production, from which one may conclude that the products made locally are no 
less competitive than the "imported" products, and this point should be reconsidered, 
if  appropriate,  when  Decision  2004/162/EC  expires.  However,  the  Commission 
considers  that  two  products  produced  on  a  significant  scale  locally  should  be 
removed from list A of the Annex to the Decision at once, as part  of  the  mid-term 
adjustment.  For  Guadeloupe  the  products  concerned  are  certain  food  production 
residues  (product  2302).  For  Réunion  the  products  concerned  are  certain  residues 
from the manufacture of wood pulp (product 3804 00). 

5. 

GENERAL CONCLUSION 

The information provided by the French authorities does not give a complete picture 
of  the  economic  and  social  impact  on  local  production  in  the  DOMs  of  the 
application  of  a  tax  differential  to  dock  dues  for  local  products  as  compared  with 
products  from  outside  the  DOMs.  The  patchy  information  provided  does,  however, 
show  that  the  differentiated  tax  arrangements  for  dock  dues  has  in  most  cases 
allowed local production of the products concerned to be maintained and to occupy a 
greater or lesser share of the local market. Very probably, local production could in 
many  cases  not  have  been  maintained  without  this  tax  differential,  and  that  would 
have had a detrimental economic and social effect. 

In  certain  cases  where  local  products  hold  the  lion's  share,  if  not  almost  all,  of  the 
market  the  Commission  has  more  doubts  about  the  need  to  maintain  the  tax 
differential.  These  doubts  are  even  stronger  in  those  cases  where  there  are  no 
products  of  a  given  category  coming  in  from  outside  at  all.  This  point  should,  if 
appropriate,  be  examined  in  detail  at  the  end  of  the  period  covered  by  Decision 
2004/162/EC.  However,  for  now  the  Commission  proposes  removing  two  products 
from the list of products to which the tax differential may be applied. 

Although the question of how to restore competitiveness to local products in relation 
to  "imported"  products  is  essentially  a  matter  for  the  French  authorities,  the 
Commission regrets that the report from the French authorities does not contain any 
information on the impact of the differentiated tax arrangements for the products on 
the general level of prices in the DOMs, and not only on inflation, since the effect of 
the differentiated taxation is to alter competition between products on the basis of the 
highest cost price, which is that of products made in the DOMs. 

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